Monday, 17 August 2015 22:43

Hot Topics Discussed During Mitchell’s Q3 Industry Report

During Mitchell’s August review of its Industry Trends Report for the third quarter of 2015, Greg Horn, Vice President of Industry Relations and Data Analytics, highlighted a variety of topics of interest to attendees. This included addressing rumors and misconceptions surrounding the new Ford F-150.

Ford has announced discounts of up to $10,000 on the aluminum-bodied F-150, depending on trim level and power train. While some in the industry are saying this means slow sales and/or buyers are rejecting aluminum, Horn said this is a misconception. “In a new vehicle launch, car makers typically over product load top-of-the-line models.” He said the rebates are designed to “move a buyer up to the next level,” so they purchase a more expensive vehicle.

The F-Series reported a modest gain this quarter, although overall sales are down 1.3 percent. Horn said much of this is due to a ramp up of production. “There was a lack of availability of all model ranges of the F-150. As production is now fully up to speed and they are meeting demand plus incentives, I think you are going to see the latter part of the year look good for the F-150.

The average transaction price of an F-Series pickup was more than $44,000 per truck, which is $3,600 higher than last year. “The all-new F-150 is turning twice as fast on dealer lots than the industry average for half-ton pickups, as Ford continues building dealer stocks,” said Horn.

Although the 2015 Ford F-Series continued to be the top-selling full-size pickup truck in the United States during July, Horn said the Chevrolet Silverado is closing in. The Silverado showed the most improved for both the month and year to date, selling 33.9 percent more in July this year than July 2014.

He mentioned Chevy’s new ad campaign, which he described as “provocative.”

During a new Chevy commercial, the Silverado and F-150 are compared. Chevy hired an independent firm, AMCI Testing, to document the cost and time for repairs. Based on the results, Chevy said it took twice as long and cost more to repair the Ford F-150.

Horn pointed out that it may be a risky campaign for GM, since it uses aluminum parts on its existing Silverado. In addition, the company announced that it will be using a predominantly aluminum structure in 2018.

Horn told attendees that after the Insurance Institute for Highway Safety (IIHS) announced repair costs being higher for the F-150, Ford disputed this finding, saying their studies show that costs are actually slightly lower for aluminum vehicles.

Horn pointed out that the test used by the IIHS was unusual because they used two F-150s crashing into one another (a 2015 steel-bodied vehicle and a 2015 aluminum-bodied one), which brings up the question of mass. He said it would be interesting to see the same type of vehicle being used side by side.

Horn also conducted a live poll during the broadcast. Out of the 528 attendees, 70 percent participated in the survey. When asked if the F-150’s aluminum structure will hurt sales, 73 percent said no. Ninety-two percent of those who answered the poll said they don’t think repair costs will be more for the F-150. In terms of insurance rates, 65 percent said they would be more expensive. Horn plans to share these findings with Ford. Average Appraisal Values & Estimates

During the presentation, Horn discussed the average age of vehicles, actual cash values and actual appraisal values.     

Since 2002, the average age of a car has steadily increased and Horn said it has now hit a record high of 11.5 years old. Cars 16-24 years old also hit a record of 44 million units and cars on the road that are 24 years and older hit a high of 14 million.

“We have an aging vehicle population,” said Horn. “We had thought earlier that with record new vehicle sales of 17 million units that this trend would reverse itself and we would start to see a newer average age. What’s happening is we have a record number of light vehicles on the road at 257.9 million.” This is up from 239 million five years ago. He attributed it to the fact that fewer vehicles are being scrapped than before.

When looking at the average age of a vehicle being repaired, Horn said the second quarter of 2015 showed it was 7.42 years old. The average actual cash value showed a record value of $14,794 and the appraisal value was $2,884.

When looking at auto physical damage (third party losses) the average vehicle age was 7.77 years old. The average actual cash value was a record $13,983 and the average appraisal value was $2,620.  Horn said by looking at these numbers it’s a good indicator of the repair versus replace comparison. “I think we’re going to repair more vehicles than total out vehicles in this year,” he said.

He then looked at the three factors that make up a repairable estimate: parts, labor and paint materials. In the second quarter of 2015, he found that labor dollars were actually the largest percentage of the overall contribution to repair costs.

In terms of the number of parts used per repairable estimate, the OEM percentage was down slightly at 66.47, compared to the second quarter of 2013 and 2014. Meanwhile, there was an increase in aftermarket parts at 14.52 percent, and recycled parts at 12.95.

Remanufactured parts, the lowest percentage of parts dollars, are mainly categorized into two categories: bumpers and alloyed wheels. Horn said the availability of these parts, due to the cost of remanufacturing and availability of plastic bumper covers, is significantly lower than a few years ago. There is also a growing trend using more aftermarket covers. “We’re starting to see the overall decrease in the percentage of parts dollars towards remanufactured parts,” he said.

Replacing Damaged Parts

Mitchell’s feature article this quarter addressed, “How Often Are the Top Damaged Parts Replaced.” Horn said that out of the number of claims made through the repairable system, 68 percent had a bumper cover included. The replacement rate was 72 percent. “That is a very very high percent; 31 points then the next most replaced part, the fender.”

He advised both insurers and repairers to look closely at how bumper covers are handled. He recommended they be efficient when ordering, replacing or repairing bumper covers. “You really need to focus on expertise,” said Horn. The third most common involved part is the bumper absorber.

“The takeaway is to look at bumper covers, and make sure appraisers are making the optimal decision for that bumper cover, whether it is repair versus replace,” said Horn.

Mitchell’s Industry Trends Report can be accessed online:http://www.mitchell.com/industry-trends-report/itr-2015-q3-apd/index.html. For more information, contact Mitchell@lewispr.com

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